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business
cost accounting

Questions and Answers of Cost Accounting

One of the inventory items at a company has a purchase price of $40. The annual demand for the item is 40,000 units. It costs $240 to place an order for the material, and out-of-pocket storage costs
Coloma Software, Inc., uses 155,000 cartons of computer disks each year. Order costs amount to $620 each time an order is placed. Carrying costs are $125 per carton.Compute the economic order quantity
Olivas Corporation manufactures Errantos, a consumer product, in optimal production runs of 3,500 units 20 times per year. It is estimated that the setup costs(including nonproductive labor) amount
The following information relates to Fong Industries: Units required per year .60,000 Cost of placing an order $300 Unit carrying cost per year $400
Assuming that the units will be required evenly throughout the year, what is the EOQ?(1) 200.(2) 300.(3) 400.(4) 500.b. Pierce Incorporated has to manufacture 48,000 blades for its electric lawn
Medina Corporation uses a direct material, Zelda, in its production processes. The company uses 86,000 units of Zelda a year. The carrying costs of Zelda amount to$25.00 per unit, while order costs
Rollins Company uses 1,620 tankloads a year of a specific input material. The tankloads are delivered by rail to a siding on the company property. The supplier is offering a special discount for
Compute the optimal order quantity. (Round to the nearest whole number.)Considering the situation in exercise 14-20, suppose that the maximum storage capacity for the company is 100 tankloads. What
Agri-chem Corporation manufactures commercial fertilizer. The manufacturing process requires several inputs including a nitrogen fixer, NFX. The company uses 39,000 units of NFX per year and makes 15
company uses 2,700 units of Zeron per year. Each unit has an invoice cost of $317, including shipping costs. Because of the volatile nature of Zeron, it costs $860 for liability insurance on each
Wildridge Products, Inc., has expressed concern over the erratic delivery times for a critical product, Westovers. The company orders 3,000 at a time and has maintained a safety stock of 200
Refer to the real world application in this chapter. Engineers and production managers often complain that discounted cash flow analysis is biased against investing in new technology. Why might they
city government is considering investing in street reconstruction that will require outlays as follows:Compute the net present value of these cash outlays if the appropriate discount rate is 10
Clinton City is considering investment in an addition to the community center that is expected to return the following cash flows:This schedule includes all cash flows from the project. The project
Refer to the data in exercise 15..15.a. What is the net present value of the project if the inflation rate is 10 percent and the discount rate under no inflation is 12 percent? (Hint: Inflation
The Chill Factor Ski Corporation plans to acquire production equipment at a cost of$200,000 that will be depreciated for tax purposes as follows: Year 1 , $40,000; Year 2,$70,000; and $30,000 per
Refer to the data in exercise 15..20.a. Using the accelerated tax depreciation deductions in exercise 15-20, what is the present value of the tax shield if the inflation rate is 8 percent and the
The Metz Company plans to acquire an asset at a cost of $800,000 that will be depreciated for tax purposes as follows: Year 1, $230,000; Year 2, $300,000; and$90,000 per year in each of Years 3.5. A
Refer to the data in exercise 15.22. Compute the present value of the tax shield from depreciation assuming the asset qualifies for straight-line depreciation ($160,000 per year). Refer to Exhibit A
Refer to the data in exercise 15.22. The no-inflation discount rate is 15 percent.Using the tax depreciation deductions in exercise
, what is the present value of the tax shield if the inflation rate is 6 percent. Refer to Exhibit A for format. 15-22 The Oakland Naval Shipyard bought machine 1 on March 5, Year 1, for $5,000
The Complete Cure Hospital is considering buying laboratory equipment with an estimated life of seven years, so they will not have to use outsiders' laboratories for certain types of laboratory work.
Refer to the data in exercise 15.27. Complete the following schedule to calculate the net present value if the real interest rate is 12 percent and inflation is expected to be 8 percent per year.
Instant Dinners, Inc. (IDI), is in the business of manufacturing microwavable frozen foods. However, recent competition from the "vacuum packed, store it on the shelf"food manufacturers has
Evans Company is considering expanding its manufacturing operations. It can either convert a warehouse it currently owns in the suburbs, or it can expand its current manufacturing plant downtown.
Management of Essen Manufacturing Company (problem 15-33) received your report on the estimated net present value of the new equipment. (All numbers in 15-33assumed no inflation.) However, management
Company Z has contracted to supply a governmental agency with 50,000 units of a product each year for the next five years. A certain component of this product can either be manufactured by Company Z
The real world application in this chapter about the Alaska North Slope oil field ("NPV Analysis in Oil Exploration") described a project with a long time between initial investment and project
A company with limited investment funds and a cost of capital of 20 percent must choose from among three competing capital investment projects with the following cash flow patterns (in thousands):The
Use the same data as in exercise 16.13 and assume that the projects are indivisible(that is. you must buy 100 percent of any project or else none of that project).Determine the optimal investment
Use the same data as in exercise 16.13 and assume that Projects A and B are mutually exclusive and that the projects are indivisible. Determine the optimal investment policy for the company. 16-15
If Morris and Associates (exercise 16.16) can invest in either Software Designs or the Sunset Mall, but not both, and the projects are indivisible, what is the optimal investment policy for the
Farm Fresh Corporation is considering whether to invest in a pasteurizing machine that costs $300,000 and will return $80,000 after tax for each of the next seven years.After that the asset will have
Diamondback, Inc., is a manufacturer of western hats. The company has an opportunity to expand production by purchasing a new automatic hat bander. The bander costs $200,000 and is fully depreciable
Quintana Company plans to replace an old piece of equipment that has no book value for tax purposes and no salvage value. The replacement equipment will provide annual cash savings of $8,000 before
Using the data for Quintana Company in exercise 16.21, compute the following investment performance measures:a. Net present value.b. Present value index.c. Internal rate of return (using a
Hazel Ridge Company is considering a capital investment proposal with an initial cost of $72,000. The asset is depreciated over a six-year period on the straight-line basis for both book and tax
Choose the best answer for each of the following separate cases. All analyses are before tax.Multiple-choice:a. Bartos, Inc., is planning to purchase a new machine for $40,000. The payback period is
The owner of Ruggles Company, a sole proprietorship, decided she should acquire some new labor-saving equipment. If the equipment is acquired, it may either be leased or a special nonrecourse loan
If the marginal tax rate for Ruggles (exercise 16.28) was 60 percent and the after-tax borrowing rate was 6 percent, would your decision in exercise 16-28 remain the same? Show supporting data.
Refer to the information for Mush Paper Company (exercise 16.30). If the relevant tax rate is 45 percent and the annual lease payments are $95,000 for Years 1-6 and$200,000 in Year 7, would your
Oakla Realty Partners has $1.4 million available for investment in real estate ventures.The partnership's cost of capital is 18 percent. As a partnership, Oakla pays no income taxes. The company has
Assume that the projects available to Oakla Realty Partners (problem 16.32) are indivisible. Determine the optimal investment policy for the partnership. Show supporting data.
If Oakla Realty Partners (problem 16.32) can invest in either the Wichita Falls Mixed-Use Development or the Tulsa Shopping Center but not both, and the other projects are divisible, what is the
Assume that a provision of the Federal Tax Code permits a taxpayer to write off 75 percent of the first $10,000 in outlays for new capital equipment. However, if the taxpayer chooses to take the
HighPotential Corporation made a $5,000 investment in equipment that qualifies for a three-year straight-line tax depreciation write-off. The financial manager of High Potential indicated that there
What issue is General Electric dealing with in this chapter's real world application?
Budgets in not-for-profit organizations have an additional purpose beyond those in for-profit organizations. What is that purpose?
Davidson Bros, is a large securities dealer. Last year, the company made 60,000 trades with an average commission of $225 per trade. Smaller investors are abandoning the market, which is expected to
Security Atlantic Bank (SAB) has $40 million in commercial loans with an average interest rate of 1 1 .5 percent. The bank also has $30 million in consumer loans with an average interest rate of 15
Wright Company manufactures ballpoint pens. Last year, the company sold 450,000 type A pens at a price of $2 per unit. The company estimates that this volume represents a 20 percent share of the
Limbo Corporation has just made its sales forecasts for the coming period. The Marketing Department estimates that the company will sell 480,000 units during the coming year. In the past, management
Graphix, Inc., makes a special line of graphic tubing items. For each of the next two years. Years 5 and 6, the company expects to sell 160,000 units. The beginning finished goods inventory, at the
Inflated Ego Company buys plain mylar balloons and prints different designs on them for various occasions. The plain balloons are imported from Taiwan, so a stock equal to the balloons needed for two
Kentron Products wishes to purchase goods in one month for sale in the next. On March 31, the company has 4.000 digital tape players in stock, although sales for the next month (April) are estimated
Herald Company is preparing its cash budget for the month of April. The following information is available concerning its inventories:What are the estimated cash disbursements in April? Inventories
Ishima Corporation is preparing its cash budget for the month of May. The following information is available concerning its accounts receivable:What are the estimated cash receipts from accounts
Norton Company manufactures infant furniture and carriages. The accounting staff is currently preparing next year's budget. Michelle Jackson is new to the firm and is interested in learning how this
Why is a contribution margin format based on variable costing more useful for performance evaluation purposes than the traditional format based on full-absorption costing?
The basic difference between a master budget and a flexible budget is that:(1) A flexible budget considers only variable costs, but a master budget considers all costs.(2) A flexible budget allows
A flexible budget is:( 1 ) Appropriate for control of factory overhead but not for control of direct materials and direct labor.(2) Appropriate for control of direct materials and direct labor but
Refer to the real world application for this chapter. Why would managers at MiniScribe ship disk drives to customers who had not ordered them and backdate invoices to the previous fiscal year?
How does the concept of flexible budgeting reinforce the notion that employees should be held responsible for what they can control?
Orcutt Corporation prepared a budget last period that called for sales of 9,000 units at a price of $12 each. The costs were estimated to be $5 variable per unit and $27,000 fixed. During the period,
Refer to the data in exercise 18.14 for Orcutt Corporation. Prepare a sales activity variance analysis like the one in Illustration 18.3.
Refer to the data in exercise 18.17 for Ortega & Reiser. Prepare a sales activity variance analysis like the one in Illustration 18 .3.
Refer to the data in exercise in 18.17 for Ortega & Reiser. Prepare a profit variance analysis like the one in Illustration 18.5 for Ortega & Reiser.
Refer to the data in exercise 18.23 for Visions, Inc. Prepare a sales activity variance analysis like the one in Illustration 18.3.
Use the information for Visions, Inc. (exercise 18.23). Prepare a profit variance analysis like the one in Illustration 18.5.
Taxes 'R Us public accountants perform both audit and tax work for clients. The Tax Department relies on the Audit Department's work to prepare tax returns. On a recent job, the audit team goofed.
The manager of the soldering area in a company that manufactures computer circuit boards asked the manager of the start station to shut down production for a few hours for emergency maintenance work
Refer to Exhibit 18.30A. Find the values of the missing items (a) through (jc).Variance Analysis Assume that actual sales volume equals actual production volume. (There are no inventory level
Refer to the data in problem 18.32 for the 47th Street Company. Prepare a sales activity variance analysis like the one in Illustration 18.3.
Use the information for the 47th Street Company in problem 18-32 to prepare a profit variance analysis like the one in Illustration 18.5.
What is a joint production process? Give several examples of joint processes.LO1
What are joint products, by-products, and scrap? How do they differ? Which of these product categories provides the greatest incentive or justification to produce?LO1
How does management determine into which category to classify each type of output from a joint process?LO1
When do the multiple products of a joint process gain separate identity?LO1
How are separate costs distinguished from joint costs?LO1
To which types of joint process output is joint cost allocated? Why?LO1
What are the decision points associated with multiple products? By what criteria would management assess whether to proceed at each point?LO1
What is cost allocation and why is it necessary in a joint process?LO1
What are the two primary methods used to allocate joint cost to joint products? Compare the advantages and disadvantages of each.LO1
Why is it sometimes necessary to use an approximated rather than actual net realizable value at split-off to allocate joint cost? How is this approximated value calculated?LO1
Describe two common approaches used to account for by-products.LO1
Wiry must “not-for-profits” allocate joint costs of multipurpose documents or events between “program” and “support” costs?LO1
(Physical and sales value allocations) Bright Academy runs two night programs for adults. During 1998, the following operating data were generated:The general ledger accounts show $38,500 for direct
(Processing beyond split-off) Post Food Processors makes three products in a single joint process. For 1997, the firm processed all three products beyond the split- off point. The following data are
(Net realizable value method) Jackson Processing produces three joint products in a single process. The joint cost is $25,000.a. Allocate the joint cost based on net realizable value at split-off. If
(Approximated net realizable value method) Hanna Chemical Company makes three products that can either be sold or processed further and then sold. The costs associated with the Hanna joint process is
(Processing beyond split-off and cost allocations) Sunshine Products has a joint process that makes three products. Joint cost for the process is $30,000.Alpha, Beta, and Gamma weigh 10 pounds, 6
(Physical measure allocation) Gruenfeld Chemical Company uses a joint process to manufacture two chemicals. During October 1997, the company incurred $10,000,000 of joint production cost in producing
(Monetary measure allocation) Wallace Realty has two operating divisions: Leasing and Sales. In March 1998, the firm spent $100,000 for general company pro¬ motions (as opposed to advertisements
(Net realizable value allocation) Arizona Mining Limited had the following gem output during October 1997: 1 diamond, 1 carat; multiple rubies, 10 carats; and multiple opals, 20 carats. This
(Sales value allocation) Vaca Dairy produces milk and sour cream from a joint process. During November, the company produced 120,000 quarts of milk and 160,000 pints of sour cream. Sales value at
(Sell or process further) A certain joint process yields two joint products, A and B. The joint cost for May 1998 is $80,000, and the sales value of the output at split-off is $120,000 for Product A
(By-products and cost allocation) Carlsbad Petroleum has a joint process that yields three products: A, B, and C. The company allocates the joint cost to the products on the basis of pounds of
(Sell or process further) New England Weavers produces three products (precut fabrics for hats, shirts, and pants) from a joint process. Joint cost is allocated on the basis of relative sales value
(By-products and cost allocation) Classic Productions produced two movies (joint products) in 1997 in its Seattle facilities. The company also generated revenue from admissions paid by fans touring
(Accounting for by-products) Alabama Mills Company manufactures various wood products that yield sawdust as a by-product. The only costs associated with the sawdust are selling costs of $5 per ton

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